FastShip – a case study: The creative use of bankruptcy and litigation funding to enhance the likelihood of creditor recoveries

Recently, the United States Court of Federal Claims rejected the U.S. Government’s argument that a litigation financing agreement precluded a plaintiff from asserting a claim for attorneys’ fees. In its opinion, the court praised the virtues of the litigation finance industry, noting that it enables “small entities, i.e., ones that could not normally survive the gauntlet of litigation, to assert their rights.” The court reasoned that fee-shifting statutes should not be interpreted to discourage plaintiffs from utilizing such a beneficial resource.

The opinion was issued in FastShip, LLC v. United States, a patent infringement case in which the plaintiff, FastShip, sued the government for infringing its ship hull design patents. After prevailing at trial and on appeal, FastShip recovered over $12 million for the infringement, including delay damages. Subsequently, FastShip moved for attorneys’ fees and related expenses pursuant to 28 U.S.C. § 1498(a).

The government challenged FastShip’s motion for fees on various grounds, including that FastShip was not a real party in interest with standing to seek fees because it had funded the litigation with the help of a litigation financier. The government also contended that the litigation financing arrangement caused FastShip’s fee request to be “outside the realm of reasonableness.”

The Court rejected both arguments and held that attorneys’ fees awards are not barred by the fact that a plaintiff is not obligated to compensate its counsel; instead, it is the existence of an attorney-client relationship that entitles a prevailing litigant to receive a fee award. Thus, the court reasoned that FastShip had standing to bring a motion for fees, even though a litigation financier helped pay its lawyers. The court further noted that FastShip would, in fact, incur attorneys’ fees absent a fee award because it would see a reduction of its own recovery. 

The Court noted that litigation funding is particularly important when a plaintiff is undertaking the “daunting task” of suing the United States government – “an opponent with vast resources and a legion of highly skilled attorneys at its disposal.” The court concluded that in this case, FastShip’s financier “acted as [the] bridge [that] allow[ed] FastShip to successfully pursue their infringement case,” and that “[p]reventing recovery based on such an agreement would be anathema to the underlying purpose of fee-shifting statutes.”

The court also observed that no circuit court has implemented rules banning or disfavoring litigation financing arrangements. Instead, to the extent rules have been implemented around the practice, they have merely required “disclosure of litigation financing agreements with third parties that have a financial interest in the outcome.”

The FastShip opinion is an excellent example of the growing consensus among courts that litigation finance is beneficial to our judicial system, and that efforts to regulate the industry should remain narrowly tailored. The decision also provides reassurance to lawyers and claimants that litigation financing agreements will not preclude otherwise meritorious claims for attorneys’ fees.

To learn more about how litigation financing could help you or your clients, contact Bentham today for a consultation.

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By Amy Geise